UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(b) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________.
Commission file number: 0-4041
HATHAWAY CORPORATION
(Incorporated Under the Laws of the State of Colorado)
8228 PARK MEADOWS DRIVE
LITTLETON, COLORADO 80124
TELEPHONE: (303) 799-8200
84-0518115
(IRS Employer Identification Number)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety (90) days.
YES X NO
----- -----
Number of Shares of the only class of Common Stock outstanding:
(4,283,000 as of December 31, 1997)
HATHAWAY CORPORATION
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
December 31, 1997 (Unaudited) and June 30, 1997.................. 1
Condensed Consolidated Statements of Operations
Three and six months ended December 31, 1997 and 1996 (Unaudited) 2
Condensed Consolidated Statements of Cash Flows
Six months ended December 31, 1997 and 1996 (Unaudited).......... 3
Notes to Condensed Consolidated Financial Statements (Unaudited)....... 4
Item 2. Management's Discussion and Analysis of Operating
Results and Financial Condition.................................. 6
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.................... 8
Item 6. Exhibits and Reports on Form 8-K....................................... 8
HATHAWAY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
DECEMBER JUNE 30,
31, 1997 1997
- -----------------------------------------------------------------------
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents $ 3,686 $ 3,431
Restricted cash 177 253
Trade receivables, net 7,187 6,910
Inventories, net 3,676 4,907
Other 1,513 2,034
- -----------------------------------------------------------------------
Total current assets 16,239 17,535
Property and equipment, net 1,745 1,841
Cost in excess of net assets acquired, net 957 591
- -----------------------------------------------------------------------
Total Assets $18,941 $19,967
========================================================================
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Long-term debt classified as current $ 1,660 $ 1,769
Accounts payable 1,565 1,843
Accrued and other current liabilities 3,447 3,329
- -----------------------------------------------------------------------
Total current liabilities 6,672 6,941
Stockholders' Investment:
Common stock 100 100
Additional paid-in capital 9,954 9,954
Retained earnings 6,072 6,818
Treasury stock (3,973) (3,971)
Other 116 125
- -----------------------------------------------------------------------
Total Stockholders' Investment 12,269 13,026
- -----------------------------------------------------------------------
Total Liabilities and Stockholders' Investment $18,941 $19,967
========================================================================
1
HATHAWAY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
- ----------------------------------------------------------------------------------------
Revenues $11,137 $10,368 $20,676 $19,186
Operating costs and expenses:
Cost of products sold 7,165 6,739 13,490 12,276
Selling 1,879 1,980 3,969 3,782
General and administrative 1,084 1,190 2,108 2,278
Engineering and development 1,001 838 1,914 1,723
Amortization of intangibles and other 87 46 148 92
- ----------------------------------------------------------------------------------------
Total operating costs and expenses 11,216 10,793 21,629 20,151
- ----------------------------------------------------------------------------------------
Operating loss (79) (425) (953) (965)
Other income (expenses), net:
Interest and dividend income 55 42 116 114
Interest expense (44) (41) (86) (83)
Other income (expenses), net (124) 63 (122) 41
- ----------------------------------------------------------------------------------------
Total other income (expenses), net (113) 64 (92) 72
- ----------------------------------------------------------------------------------------
Loss before income taxes (192) (361) (1,045) (893)
Benefit for income taxes 35 135 299 292
- ----------------------------------------------------------------------------------------
Net loss $ (157) $ (226) $ (746) $ (601)
- ----------------------------------------------------------------------------------------
Basic and diluted net loss per share
(Note 4) $ (0.04) $ (0.05) $ (0.17) $ (0.14)
========================================================================================
2
HATHAWAY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
FOR THE SIX MONTHS ENDED
DECEMBER 31,
1997 1996
- ------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (746) $ (601)
Adjustments to reconcile net loss to net
cash from operating activities:
Depreciation and amortization 414 483
Other 51 187
Changes in assets and liabilities, net of
effect of purchase of Tate
Integrated Systems (Note 3):
(Increase) decrease in -
Restricted cash 76 (64)
Receivables (313) (550)
Inventories 815 894
Prepaid expenses and other 521 142
Increase (decrease) in -
Accounts payable (278) (502)
Accrued liabilities and other 118 (988)
- -----------------------------------------------------------------------------
Net cash from operating activities 658 (999)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (289) (192)
Proceeds from maturity of marketable securities -- 198
Purchase of interest in Tate Integrated Systems
(Note 3) -- (718)
- -----------------------------------------------------------------------------
Net cash from investing activities (289) (712)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on line of credit and long-term debt (109) (2)
Proceeds from exercise of employee stock options -- 39
Purchase of treasury stock (2) (84)
- -----------------------------------------------------------------------------
Net cash from financing activities (111) (47)
Effect of foreign exchange rate changes on cash (3) 51
- -----------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 255 (1,707)
Cash and cash equivalents at beginning of year 3,431 4,925
- -----------------------------------------------------------------------------
Cash and cash equivalents at December 31 $ 3,686 $ 3,218
=============================================================================
3
HATHAWAY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PREPARATION AND PRESENTATION
-------------------------------------
The accompanying unaudited condensed consolidated financial statements
include the accounts of Hathaway Corporation, its wholly-owned subsidiaries
and investments in joint ventures (the Company). All significant
intercompany accounts and transactions have been eliminated in
consolidation. Certain reclassifications have been made to prior year
balances in order to conform to the current year's presentation.
The condensed consolidated financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission and include all adjustments which are,
in the opinion of management, necessary for a fair presentation. Certain
information and footnote disclosures normally included in financial
statements that are prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations. The Company believes that the disclosures herein are
adequate to make the information presented not misleading. The financial
data for the interim periods may not necessarily be indicative of results
to be expected for the year.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make certain
estimates and assumptions. Such estimates and assumptions affect the
reported amounts of assets and liabilities as well as disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
It is suggested that the accompanying condensed interim financial
statements be read in conjunction with the Consolidated Financial
Statements and related Notes to such statements included in the June 30,
1997 Annual Report and Form 10-K previously filed by the Company.
2. INVENTORIES
-----------
Inventories, valued at the lower of cost (first-in, first-out basis) or
market, are as follows (in thousands):
DECEMBER 31, JUNE 30,
1997 1997
-------------------------
Parts and raw materials, net $2,543 $2,141
Finished goods and work-in process, net 1,133 2,766
-------------------------
$3,676 $4,907
=========================
3. BUSINESS ACQUISITION
--------------------
Effective September 30, 1996, the Company acquired a 100% partnership
interest in Tate Integrated Systems (TIS), which has since operated as
Hathaway Industrial Automation (HIA).
The acquisition has been accounted for using the purchase method of
accounting, and, accordingly, the purchase price has been allocated to the
assets purchased and the liabilities assumed based upon the fair values at
the date of acquisition. The final net purchase price allocation was as
follows (in thousands):
Trade receivables, net $ 485
Inventories, net 649
Property and equipment, net 123
Cost in excess of net assets acquired 624
Accounts payable (580)
Accrued liabilities and other (209)
------
Net purchase price $1,092
======
4
HATHAWAY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. EARNINGS PER SHARE
------------------
In December, 1997 the Company adopted Financial Accounting Standards Board
Statement No. 128, "Earnings Per Share" (EPS). In accordance with the
requirements of the Statement, Primary and Fully Diluted EPS has been
replaced with Basic and Diluted EPS in all periods for which a Statement of
Operations is presented.
Basic and Diluted earnings per share have been computed as follows (in
thousands, except per share data):
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
--------------------------------------------------------
Numerator:
Net loss $ (157) $ (226) $ (746) $ (601)
Denominator:
Weighted average
outstanding shares 4,284 4,245 4,284 4,242
--------------------------------------------------------
Basic and Diluted net
loss per share $(0.04) $(0.05) $(0.17) $(0.14)
Options to purchase stock were outstanding during the three and six months
ended December 31, 1996 and 1997 but were not included in the computation
of diluted EPS due to their anti-dilutive effect on EPS. These outstanding
options are summarized as follows:
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
--------------------------------------------------------
Weighted average
outstanding options 708,704 689,745 708,704 544,400
Weighted average
exercise price $3.45 $3.24 $3.45 $3.15
At December 31, 1997 outstanding options to purchase 708,704 shares at a
weighted average exercise price of $3.45 may have a dilutive effect on
future EPS.
5
HATHAWAY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATING RESULTS AND FINANCIAL CONDITION
All statements contained herein that are not statements of historical fact
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that could
cause the actual results of the Company to be materially different from the
historical results or from any future results expressed or implied by such
forward-looking statements. Among the factors that could cause actual results
to differ materially are the following: the unavailability of sufficient capital
on satisfactory terms to finance the Company's business plan, increased
competition, the introduction of new technologies and competitors into the
systems and instrumentation markets where the Company competes, adverse changes
in the regulatory environment, and general business and economic conditions. In
addition to statements that explicitly describe such risks and uncertainties,
readers are urged to consider statements labeled with the terms "believes,"
"expects," "plans," "anticipates," or "intends" to be uncertain and forward-
looking. All cautionary statements made herein should be read as being
applicable to all related forward-looking statements wherever they appear. In
this connection, investors should consider the risks described herein.
OPERATING RESULTS
- -----------------
For the second quarter ended December 31, 1997, the Company recognized a net
loss of $157,000 or $.04 per share, compared to a net loss of $226,000 or $.05
per share, for the same period last year. Included in these results are net
losses of $491,000 and $106,000 for the quarters ended December 31, 1997 and
1996, respectively, incurred by Hathaway Industrial Automation (HIA), which was
acquired by the Company effective September 30, 1996. Excluding the results of
HIA, the Company recognized net income of $334,000 and a net loss of $120,000
for the quarters ended December 31, 1997 and 1996, respectively. Revenues
increased 7% in the second quarter from $10,368,000 last year to $11,137,000
this year.
The Company recognized a net loss of $746,000, or $.17 per share, for the six
months ended December 31, 1997, compared to a net loss of $601,000, or $.14 per
share, for the six months ended December 31, 1996. Included in these results
are HIA's net losses of $943,000 and $106,000 for the six months ended December
31, 1997 and 1996, respectively. Excluding HIA, the Company recognized net
income of $197,000 and a net loss of $495,000 for the six months ended December
31, 1997 and 1996, respectively. Revenues for the first six months increased by
8% from $19,186,000 in fiscal 1997 to $20,676,000 in fiscal 1998.
The 7% increase in revenues in the second quarter and the 8% increase in
revenues for the first six months were due to 15% increases in revenues from the
Company's motion control products and 4% increases in revenues from the
Company's power and process instrumentation products. For the first six months,
the 4% increase in power and process revenues was due to revenues being
generated by HIA during both quarters of 1998 compared to only one quarter
during 1997, partially offset by a 3% decrease in traditional power and process
revenues.
In the second quarter, sales to international customers increased from
$3,520,000 in fiscal 1997 to $3,547,000 in fiscal 1998. In the first six months,
sales to international customers decreased from $6,949,000 to $6,527,000.
Foreign sales represented 32% and 34% of total sales in the quarter ended
December 31, 1997 and 1996, respectively, and 32% and 36% of total sales in the
six months ended December 31, 1997 and 1996, respectively.
Cost of products sold as a percentage of revenues in the second quarter and the
first six months ended December 31, 1997 remained reasonably consistent with the
prior year, decreasing from 65% to 64% in the second quarter and increasing from
64% to 65% in the first six months. Fluctuations in cost of products sold as a
percentage of revenues are due to changes in the mix of products sold, price
changes implemented in response to market conditions, and other factors.
Selling, general and administrative, and engineering and development expenses
decreased 1% in the second quarter and increased 3% in the first six months, as
compared to the same periods last year. Excluding HIA's selling, general and
administrative, and engineering and development expenses incurred in the first
quarter of 1998, these expenses decreased 4% in the first six months of 1998, as
compared to the same period last year.
6
HATHAWAY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATING RESULTS AND FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's liquidity position as measured by cash and cash equivalents
(excluding restricted cash) increased $255,000 during the first six months of
fiscal 1998 to a balance of $3,686,000 at December 31, 1997, compared to
$1,707,000 used in the first six months of fiscal 1997. Operating activities
generated $658,000 in fiscal 1998 compared to $999,000 used in fiscal 1997. The
improved cash from operating activities was primarily due to fluctuations in
working capital balances.
Cash of $289,000 was used by investing activities in the second quarter of 1998,
compared to $712,000 used by investing activities last year. The variance was
primarily due to $718,000 used in fiscal 1997 for the purchase of the interest
in Tate Integrated Systems, offset by the maturity of a long-term investment
which was converted into cash in the second quarter of fiscal 1997. Financing
activities used $111,000 in fiscal 1998 compared to $47,000 used in fiscal 1997.
The Company's remaining fiscal 1998 working capital, capital expenditure and
debt service requirements, including repayment of the entire balance of the
Midland loan, if necessary, are expected to be funded from the existing cash
balance of $3,686,000 at December 31, 1997. In addition, the Company may seek
additional debt, equity or other financing, particularly if it must fully repay
the Midland loan balance, in order to supplement its long-term financial
resources. There can be no assurance, however, that additional debt, equity or
other financing will be available on terms acceptable to the Company, or at all.
7
HATHAWAY CORPORATION
PART II. OTHER INFORMATION
- -------- -----------------
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company held its annual stockholders' meeting on October 23, 1997.
The stockholders elected E.E. Prince, R.D. Smith, C.H. Clarridge, D.D.
Hock, G.D. Hubbard and G.J. Pilmanis to serve on the Board of Directors
for the coming year. In addition, the shareholders defeated a
stockholder proposal requesting sale of the Company, elimination of the
shareholders' rights plan and employee severance agreements, and
reduction of the two-thirds voting requirement for the election of
directors to a simple majority. The vote tabulation was as follows:
1) Election of Directors
NUMBER OF VOTES
WITHELD OR TOTAL SHARES % OF SHARES
NOMINEE FOR AGAINST OUTSTANDING VOTING FOR
- -----------------------------------------------------------------------------------------------
E.E. Prince 2,935,399 839,594 4,284,085 68%
R.D. Smith 2,973,063 801,930 4,284,085 69%
C.H. Clarridge 2,994,320 780,673 4,284,085 69%
D.D. Hock 3,050,348 724,645 4,284,085 71%
G.D. Hubbard 2,996,606 778,387 4,284,085 69%
G.J. Pilmanis 3,040,567 734,426 4,284,085 70%
2) Shareholder proposal requesting sale of the Company, elimination of
the shareholders' rights plan and employee severance agreements,
and reduction of the two-thirds voting requirement for the election
of directors to a simple majority
TOTAL
VOTES BROKER
FOR AGAINST COUNTED ABSTAINING NON-VOTES
- -------------------------------------------------------------------------------
Number of votes 993,868 2,167,186 3,161,054 50,103 563,836
% of votes counted 31% 69% 100%
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
13. Annual Report containing Notes to Consolidated Financial Statements
in the Registrant's June 30, 1997 Annual Report to Stockholders.
27. Financial Data Schedule.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed in the three months ended
December 31, 1997.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HATHAWAY CORPORATION
DATE: February 13, 1997 By: /s/ Richard D. Smith
---------------------------- ---------------------
Executive Vice President, Treasurer,
and Chief Financial and
Accounting Officer
8
5
1,000
3-MOS 6-MOS
JUN-30-1998 JUN-30-1998
OCT-01-1997 JUL-01-1997
DEC-31-1997 DEC-31-1997
3,686 3,686
0 0
7,687 7,687
500 500
3,676 3,676
16,239 16,239
9,046 9,046
7,301 7,301
18,941 18,941
6,672 6,672
1,660 1,660
0 0
0 0
100 100
12,169 12,169
18,941 18,941
11,137 20,676
11,137 20,676
7,165 13,490
7,165 13,490
0 0
17 36
44 86
(192) (1,045)
(35) (299)
(157) (746)
0 0
0 0
0 0
(157) (746)
(0.04) (0.17)
(0.04) (0.17)
Presented gross
